Brendan McDermid/ReutersA Citibank branch in New York.
9:42 a.m. | Updated
Citigroup said on Monday that its third-quarter earnings plummeted because of a $4.7 billion loss related to the joint venture brokerage business Morgan Stanley Smith Barney.
Last month, Citigroup agreed to sell its part of the joint venture, beginning with a 14 percent stake, to Morgan Stanley. Citigroup said at the time that it was writing down the value of its remaining interest in the brokerage business.
The loss was offset slightly by an uptick in mortgage lending and buoyed by a rebound in capital markets. Citigroup, the nation’s third-largest bank, reported net income of $468 million, or 15 cents a share, on revenue of $14 billion, compared with net income of $3.8 billion, or $1.23 a share, in the quarter a year earlier.
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Documents: The earnings release
Graphic: Wall St. Earnings CalendarExcluding the loss on its brokerage unit, a one-time accounting charge and credit adjustments, the bank reported earning $3.27 billion, or $1.06 a share, up from $2.57 billion, or 84 cents a share, in the period a year earlier.
Citigroup was expected to record earnings per share of 96 cents on revenue of $18.7 billion.
Like its rivals in the industry, Citigroup is grappling with sluggish growth in the United States.
Under the leadership of Vikram S. Pandit, its chief executive, the bank has worked to sharply reduce the bank’s expenses and credit losses. “Our core businesses showed momentum during the quarter as we increased lending and generated higher operating revenues,” Mr. Pandit said in a statement.
Along with Bank of America, Citigroup was among the banks most crippled by the financial crisis of 2008. Mr. Pandit has vowed to restore the bank to profitability, in part by shedding more troubled assets.
Citigroup is still trying to work through the glut of bad assets it holds in its Citi Holdings Unit.
Increasingly, a large share of the company’s earnings stem from its consumer banking unit in North America, which includes mortgage lending.
John C. Gerspach, the bank’s chief financial officer, emphasized in a conference call on Monday that Citigroup was able to successfully grow across its “core businesses.”
While Citigroup did not get the same help from mortgages as rivals like JPMorgan Chase and Wells Fargo, which reported robust profits on Friday from a refinancing frenzy, the bank reported an 18 percent increase in profit in its North American banking segment, in part because of mortgage lending. Even though mortgage originations were down, revenue in the unit was up, in part as a result of widening spreads on the loans. Mr. Gerspach suggested the bank could have been more nimble by increasing staffing to handle the burst in refinancing activity.
On Friday, JPMorgan’s chief executive, Jamie Dimon, pointed to robust growth in its mortgage banking unit, sounding an optimistic note on the housing market.
“We believe the housing market has turned the corner,” Mr. Dimon said.
Mr. Gerspach, however, struck a more cautious tone. “There is still a question, clearly in my mind, as to whether we have a strong enough economy to support the housing market,” he said.
The bright spot for Citigroup on Monday was a 67 percent increase in profit from its securities and banking unit, as the bank benefited from revived capital market activity.
“We continue to gain market share in investment banking,” Mr. Gerspach said. He pointed to “improved market share in every investment product.”
Outside of the United States, however, some of Citigroup’s results were lackluster. Profit in its international consumer banking unit fell 3 percent, to $862 million, from $885 million in the period a year earlier. With a large international footprint, the bank has positioned itself to benefit from increased lending in Asia and Mexico.
“There is an underlying growth story in the numbers,” Mr. Gerspach said.
Latin America, where Citigroup has positioned much of its hopes for increased profitability, saw some gains. Revenue in the region grew 7 percent, to $2.4 billion. Some of the profit was crimped by reduced loan spreads in Asia.
Across the bank, consumer banking posted revenue gains of 2 percent, to $10.2 billion, from the period a year earlier, while net income in the consumer banking unit increased 18 percent, to $2.2 billion.
Shares of Citigroup were up nearly 3 percent in early trading in New York on Monday.
Article source: http://dealbook.nytimes.com/2012/10/15/citigroup-earnings-plummet-in-third-quarter/?partner=rss&emc=rss
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